While I'd assume most of our readers are well past the birds and the bees talk, borrowing money from our ‘rents still remains a taboo topic, yet it seems the vast majority of first home buyers are seeking help from the Bank of Mum and Dad to quite literally get their key in the door.
According to Legal & General, mummy and daddy are contributing an average £24,100 to home buyers this year, up from £6,000 in 2018. Collectively, parents have given their offspring £6.3 billion, a figure high enough to rank the Bank of Mum and Dad 10 if it was a mortgage lender.
“Almost a fifth of those who said they had, or would help a family member buy a home, said it was because they felt it was their personal responsibility to help out.
“But the financial services firm warned that parents' generosity could hurt their standard of living in retirement.”
Lending from your beloved birth givers is predictably a response to the continued rise in house prices relative to incomes, and increase in our parents equity. The Office for National Statistics reports the average first home buyer mortgage sits at £160,000.
So, if you’ve been tiptoeing around the idea of turning to your mum and dad for money, here are a few things you should keep in mind.
It is important to be both realistic and patient, giving your parents time to review their finances. L & G reports that more than a quarter of those surveyed were not confident they had enough money to last through their retirement.
Unless it’s wrapped in a little bow and comes with a card of a dachshund wearing a little hat, ensure you make it clear from the very start the terms on which you will be receiving the money. Family Building Society found 77% of parents surveyed loaned their children money, as opposed to 23% gifting it.
Despite how uncomfortable this conversation may be, being open and honest will save the soap-opera level drama down the track.
Producing a written document will prevent any miscommunication or strain on relationships that may come from only relying on a verbal agreement.
Now the tricky part is over and you can start breathing normally again, empower yourself to start making big moves towards saving for a house deposit.
Whether it’s the age old ‘spend half, save half’ method which I coincidentally learnt from my parents, setting a motivational quote as your screensaver, or using an app, like Chip, to help you save, it’s important to be realistic with your own saving goals, too.
So, whether you’re asking your parents what goes in where and with who, or for a little help getting into the housing market, make sure you let them know how much you love and appreciate them (I recommend against demonstrating this with ‘MUM’ heart tattoo).
Remember your Capital is at Risk and past performance is not a reliable guide to future returns. The value of your investment can go down as well as up and you might get back less than you originally invested.